The 28/36 Rule: A Mortgage Affordability Guideline That Actually Works

Introduction: What Is the 28/36 Rule?

When thinking about buying a home, one of the most important questions is: How much house can I afford? That’s where the 28/36 rule comes in—a time-tested mortgage affordability guideline used by lenders to evaluate your ability to take on a home loan.

The 28/36 rule suggests you should spend no more than 28% of your gross monthly income on housing expenses, and no more than 36% on total debt obligations, including credit cards, auto loans, student loans, and your future mortgage.

Understanding and applying this rule can help you budget responsibly and avoid overextending your finances—making it a valuable tool whether you’re a first-time homebuyer or a seasoned homeowner.

The 28/36 Rule Breakdown

• 28% Housing Expense Ratio: This includes your mortgage principal, interest, property taxes, homeowner’s insurance, PMI (if applicable), and sometimes PMI (if applicable) 
• 36% Total Debt-to-Income Ratio (DTI): This includes housing costs plus monthly debts like car payments, student loans, personal loans, and credit cards.

Example:
If your gross monthly income is $7,000:

• 28% of $7,000 = $1,960 (max monthly housing expenses)
• 36% of $7,000 = $2,520 (max total debt, including housing)

This means if you already pay $500 in monthly debts, your target mortgage payment should stay around $1,460 ($1,960 – $500) to remain within the rule.

Why the 28/36 Rule Matters

Lenders use the 28/36 rule as a baseline for mortgage approval. While it’s not a hard limit, exceeding these thresholds may:

• Raise red flags for underwriters
• Require compensating factors (e.g. higher credit score or large savings)
• Limit your loan options or interest rate

From a personal finance standpoint, staying within these ratios helps ensure your housing costs won’t strain your budget or crowd out other financial goals like saving for retirement or building an emergency fund.

What the Rule Doesn’t Cover

The 28/36 rule is helpful, but it’s not perfect. It doesn’t account for:

• Childcare or elder care expenses
• Healthcare premiums or out-of-pocket costs
• Utility bills or transportation
• Contributions to retirement or emergency savings

Even if you meet the 28/36 rule, your personal comfort level may be different. Some people feel overextended at 30%, while others with little debt may be fine stretching to 40%.

How Does the Dave Ramsey 25% Rule Compare?

Financial expert Dave Ramsey recommends a more conservative approach: Spend no more than 25% of your take-home pay on housing costs. Unlike the 28/36 rule—which uses gross income—this is based on your net income, or what actually hits your bank account after taxes.

Why it’s stricter:

• A lower percentage of take-home pay generally means a smaller mortgage.
• It builds more breathing room into your monthly budget.
• It assumes more of your income should go toward savings, investing, or paying off other debts.

Example: If your take-home pay is $5,000/month, the Ramsey rule says your mortgage payment should be no more than $1,250/month. This could translate to a significantly lower home price than the 28/36 rule would allow.

Who it’s good for:

• First-time buyers on a tight budget
• Buyers with variable income or high living expenses
• People prioritizing aggressive debt payoff or retirement savings

Many homebuyers choose to use both rules to set a personal affordability range—starting with Ramsey’s 25% rule as a baseline, then seeing how far the 28/36 rule allows them to stretch.

Factors That Can Influence the Rule

The 28/36 rule is a guideline—not a law. It doesn’t work for everyone, especially in today’s housing market. Here are some exceptions and nuances:

1. High-Cost Housing Markets

In places like San Francisco or New York, housing costs often exceed 28% of gross income—even for well-qualified buyers. Lenders may allow a higher front-end ratio (up to 31% or more) depending on the loan type.

2. Loan Types

• FHA loans allow higher DTI ratios—up to 31/43%, or even higher with compensating factors.
• VA loans and USDA loans offer more flexibility depending on residual income and loan amount.

3. Strong Financial Profile

If you have a high credit score, a large down payment, or substantial cash reserves, a lender may approve you outside of the 28/36 limits.

4. Lifestyle & Other Expenses

The rule doesn’t account for:

• Daycare or elder care
• High transportation or healthcare costs
• Contributions to savings or retirement These can impact your actual affordability even if you qualify on paper.

When It’s Okay to Break the 28/36 Rule

Following the rule blindly can sometimes mean missing out on the right home or under-buying when you can truly afford more. It’s okay to stretch beyond the rule if:

• You have no or very low non-housing debts
• Your income is stable and growing
• You’re buying a home well below your means in terms of location or upkeep

Use the rule as a starting point, not the finish line.

Applying the Rule to Real Life

Let’s break down two sample buyers to see how the 28/36 rule works:

Scenario A: Conservative Buyer

• Monthly Gross Income: $6,000
• Existing Debt: $500/month (car loan)
• 28% of $6,000 = $1,680 (max housing)
• 36% of $6,000 = $2,160 (max total debt)
• Max mortgage payment = $1,680 – $500 = $1,180

Scenario B: Debt-Free Buyer

• Monthly Gross Income: $6,000
• Existing Debt: $0
• Max housing = $1,680 (28%)
• Max total = $2,160
• In this case, they could allocate more to housing—possibly up to 36%—if they’re comfortable with the risk.

Tools to Help You Apply the 28/36 Rule

Use our Loan Affordability Calculator to see exactly how the 28/36 rule applies to you. Our calculator:

• Uses real OBMMI rates for 15- and 30-year terms
• Accounts for taxes, insurance, and down payment
• Compares both loan terms side by side
• Shows you the max loan and monthly payment you can afford

You can also review How Debt-To-Income Ratio Impacts Mortgage Approval to understand how lenders view DTI and what you can do to lower yours.